Cautious Roll-Out of Chinese Real Estate Credit Scheme Reflects Market Uncertainty

The slow roll-out of the “whitelist” lending scheme, launched by Chinese authorities to provide credit to struggling real estate developers, is reflective of the deep-seated caution surrounding the country’s residential property market. Four months after the initiative was introduced, new funding is being released at a drip feed pace due to concerns over the market’s future direction. Despite state-owned and commercial banks receiving approval for $72bn worth of loans for 2,100 development projects by March, the bulk of these funds were used to renew existing loans rather than finance new initiatives. This is particularly worrying given estimates suggest around 100m unfinished apartments are currently lying empty across China. The lack of new funding is causing significant issues for developers, with one executive claiming that accepting support through the “whitelist” scheme was a “bad deal” as it forces firms to finish construction whilst also struggling to sell properties in a poor market. Some bankers have admitted that they will continue to resist government demands to actively promote loss-making projects, fearing that doing so could result in a surge of non-performing loans. Whilst Chinese authorities are implementing policies designed to rid the market of unsold housing, including relaxing home purchase restrictions in major cities and allowing swaps between new and old properties, average daily home sales fell 47% year-on-year during the recent May Day holiday period, following a 45% decline in April. This highlights the enormity of the challenge faced by policymakers as they seek to stimulate demand.